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1040 State Tax Form

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1040 State Tax Form

1040 state tax form 6. 1040 state tax form   Retail Tax on Heavy Trucks, Trailers, and Tractors Table of Contents Highway vehicle. 1040 state tax form Vehicles not considered highway vehicles. 1040 state tax form Idling reduction device. 1040 state tax form Separate purchase. 1040 state tax form Leases. 1040 state tax form Exported vehicle. 1040 state tax form Tax on resale of tax-paid trailers and semitrailers. 1040 state tax form Use treated as sale. 1040 state tax form Sale. 1040 state tax form Long-term lease. 1040 state tax form Short-term lease. 1040 state tax form Related person. 1040 state tax form Exclusions from tax base. 1040 state tax form Sales not at arm's length. 1040 state tax form Installment sales. 1040 state tax form Repairs and modifications. 1040 state tax form Further manufacture. 1040 state tax form Rail trailers and rail vans. 1040 state tax form Parts and accessories. 1040 state tax form Trash containers. 1040 state tax form House trailers. 1040 state tax form Camper coaches or bodies for self-propelled mobile homes. 1040 state tax form Farm feed, seed, and fertilizer equipment. 1040 state tax form Ambulances and hearses. 1040 state tax form Truck-tractors. 1040 state tax form Concrete mixers. 1040 state tax form Registration requirement. 1040 state tax form Further manufacture. 1040 state tax form A tax of 12% of the sales price is imposed on the first retail sale of the following articles, including related parts and accessories sold on or in connection with, or with the sale of, the articles. 1040 state tax form Truck chassis and bodies. 1040 state tax form Truck trailer and semitrailer chassis and bodies. 1040 state tax form Tractors of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. 1040 state tax form A truck is a highway vehicle primarily designed to transport its load on the same chassis as the engine, even if it is equipped to tow a vehicle, such as a trailer or semitrailer. 1040 state tax form A tractor is a highway vehicle designed to tow a vehicle, such as a trailer or semitrailer. 1040 state tax form A tractor may carry incidental items of cargo when towing or limited amounts of cargo when not towing. 1040 state tax form A sale of a truck, truck trailer, or semitrailer is considered a sale of a chassis and a body. 1040 state tax form The seller is liable for the tax. 1040 state tax form Chassis or body. 1040 state tax form   A chassis or body is taxable only if you sell it for use as a component part of a highway vehicle that is a truck, truck trailer or semitrailer, or a tractor of the kind chiefly used for highway transportation in combination with a trailer or semitrailer. 1040 state tax form Highway vehicle. 1040 state tax form   A highway vehicle is any self-propelled vehicle designed to carry a load over public highways, whether or not it is also designed to perform other functions. 1040 state tax form Examples of vehicles designed to carry a load over public highways are passenger automobiles, motorcycles, buses, and highway-type trucks and truck tractors. 1040 state tax form A vehicle is a highway vehicle even though the vehicle's design allows it to perform a highway transportation function for only one of the following. 1040 state tax form A particular type of load, such as passengers, furnishings, and personal effects (as in a house, office, or utility trailer). 1040 state tax form A special kind of cargo, goods, supplies, or materials. 1040 state tax form Some off-highway task unrelated to highway transportation, except as discussed next. 1040 state tax form Vehicles not considered highway vehicles. 1040 state tax form   Generally, the following kinds of vehicles are not considered highway vehicles for purposes of the retail tax. 1040 state tax form Specially designed mobile machinery for nontransportation functions. 1040 state tax form A self-propelled vehicle is not a highway vehicle if all the following apply. 1040 state tax form The chassis has permanently mounted to it machinery or equipment used to perform certain operations (construction, manufacturing, drilling, mining, timbering, processing, farming, or similar operations) if the operation of the machinery or equipment is unrelated to transportation on or off the public highways. 1040 state tax form The chassis has been specially designed to serve only as a mobile carriage and mount (and power source, if applicable) for the machinery or equipment, whether or not the machinery or equipment is in operation. 1040 state tax form The chassis could not, because of its special design and without substantial structural modification, be used as part of a vehicle designed to carry any other load. 1040 state tax form Vehicles specially designed for off-highway transportation. 1040 state tax form A vehicle is not treated as a highway vehicle if the vehicle is specially designed for the primary function of transporting a particular type of load other than over the public highway and because of this special design, the vehicles's capability to transport a load over a public highway is substantially limited or impaired. 1040 state tax form To make this determination, you can take into account the vehicle's size, whether the vehicle is subject to licensing, safety, or other requirements, and whether the vehicle can transport a load at a sustained speed of at least 25 miles per hour. 1040 state tax form It does not matter that the vehicle can carry heavier loads off highway than it is allowed to carry over the highway. 1040 state tax form Nontransportation trailers and semitrailers. 1040 state tax form A trailer or semitrailer is not treated as a highway vehicle if it is specially designed to function only as an enclosed stationary shelter for carrying on a nontransportation function at an off-highway site. 1040 state tax form For example, a trailer that is capable only of functioning as an office for an off-highway construction operation is not a highway vehicle. 1040 state tax form Gross vehicle weight. 1040 state tax form   The tax does not apply to truck chassis and bodies suitable for use with a vehicle that has a gross vehicle weight (defined below) of 33,000 pounds or less. 1040 state tax form It also does not apply to truck trailer and semitrailer chassis and bodies suitable for use with a trailer or semitrailer that has a gross vehicle weight of 26,000 pounds or less. 1040 state tax form Tractors that have a gross vehicle weight of 19,500 pounds or less and a gross combined weight of 33,000 pounds or less are excluded from the 12% retail tax. 1040 state tax form   The following four classifications of truck body types meet the suitable for use standard and will be excluded from the retail excise tax. 1040 state tax form Platform truck bodies 21 feet or less in length. 1040 state tax form Dry freight and refrigerated truck van bodies 24 feet or less in length. 1040 state tax form Dump truck bodies with load capacities of 8 cubic yards or less. 1040 state tax form Refuse packer truck bodies with load capacities of 20 cubic yards or less. 1040 state tax form For more information on these classifications, see Revenue Procedure 2005-19, which is on page 832 of I. 1040 state tax form R. 1040 state tax form B. 1040 state tax form 2005-14 at www. 1040 state tax form irs. 1040 state tax form gov/pub/irs-irbs/irb05-14. 1040 state tax form pdf. 1040 state tax form   The gross vehicle weight means the maximum total weight of a loaded vehicle. 1040 state tax form Generally, this maximum total weight is the gross vehicle weight rating provided by the manufacturer or determined by the seller of the completed article. 1040 state tax form The seller's gross vehicle weight rating is determined solely on the basis of the strength of the chassis frame and the axle capacity and placement. 1040 state tax form The seller may not take into account any readily attachable components (such as tires or rim assemblies) in determining the gross vehicle weight. 1040 state tax form See Regulations section 145. 1040 state tax form 4051-1(e)(3) for more information. 1040 state tax form Parts or accessories. 1040 state tax form   The tax applies to parts or accessories sold on or in connection with, or with the sale of, a taxable article. 1040 state tax form For example, if at the time of the sale by the retailer, the part or accessory has been ordered from the retailer, the part or accessory will be considered as sold in connection with the sale of the vehicle. 1040 state tax form The tax applies in this case whether or not the retailer bills the parts or accessories separately. 1040 state tax form   If the retailer sells a taxable chassis, body, or tractor without parts or accessories considered essential for the operation or appearance of the taxable article, the sale of the parts or accessories by the retailer to the purchaser is considered made in connection with the sale of the taxable article even though they are shipped separately, at the same time, or on a different date. 1040 state tax form The tax applies unless there is evidence to the contrary. 1040 state tax form For example, if a retailer sells to any person a chassis and the bumpers for the chassis, or sells a taxable tractor and the fifth wheel and attachments, the tax applies to the parts or accessories regardless of the method of billing or the time at which the shipments were made. 1040 state tax form The tax does not apply to parts and accessories that are spares or replacements. 1040 state tax form   The tax imposed on parts and accessories sold on or in connection with the taxable articles listed earlier and the tax imposed on the separate purchase of parts and accessories (discussed next) for the taxable articles listed earlier do not apply to an idling reduction device or insulation that has an R value of at least R35 per inch. 1040 state tax form Idling reduction device. 1040 state tax form   An idling reduction device is any device or system of devices that provide the tractor with services, such as heat, air conditioning, and electricity, without the use of the main drive engine while the tractor is temporarily parked or stationary. 1040 state tax form The device must be affixed to the tractor and determined by the Administrator of the EPA, in consultation with the Secretary of Energy and Secretary of Transportation, to reduce idling while parked or stationary. 1040 state tax form The EPA discusses idling reduction technologies on its website at www. 1040 state tax form epa. 1040 state tax form gov/smartway/technology/idling. 1040 state tax form htm. 1040 state tax form Separate purchase. 1040 state tax form   The tax generally applies to the price of a part or accessory and its installation if the following conditions are met. 1040 state tax form The owner, lessee, or operator of any vehicle that contains a taxable article installs any part or accessory on the vehicle. 1040 state tax form The installation occurs within 6 months after the vehicle is first placed in service. 1040 state tax form   The owners of the trade or business installing the parts or accessories are secondarily liable for the tax. 1040 state tax form   A vehicle is placed in service on the date the owner takes actual possession of the vehicle. 1040 state tax form This date is established by a signed delivery ticket or other comparable document indicating delivery to and acceptance by the owner. 1040 state tax form   The tax does not apply if the installed part or accessory is a replacement part or accessory. 1040 state tax form The tax also does not apply if the total price of the parts and accessories, including installation charges, during the 6-month period is $1,000 or less. 1040 state tax form However, if the total price is more than $1,000, the tax applies to the cost of all parts and accessories (and installation charges) during that period. 1040 state tax form Example. 1040 state tax form You bought a taxable vehicle and placed it in service on April 8. 1040 state tax form On May 3, you bought and installed parts and accessories at a cost of $850. 1040 state tax form On July 15, you bought and installed parts and accessories for $300. 1040 state tax form Tax of $138 (12% of $1,150) applies on July 15. 1040 state tax form Also, tax will apply to any costs of additional parts and accessories installed on the vehicle before October 8. 1040 state tax form First retail sale defined. 1040 state tax form   The sale of an article is treated as the first retail sale, and the seller will be liable for the tax imposed on the sale unless one of the following exceptions applies. 1040 state tax form There has been a prior taxable sale, lease, or use of the article (however, see Tax on resale of tax-paid trailers and semitrailers, later). 1040 state tax form The sale qualifies as a tax-free sale under section 4221 (see Sales exempt from tax, later). 1040 state tax form The seller in good faith accepts from the purchaser a statement signed under penalties of perjury and executed in good faith that the purchaser intends to resell the article or lease it on a long-term basis. 1040 state tax form There is no registration requirement. 1040 state tax form Leases. 1040 state tax form   A long-term lease (a lease with a term of 1 year or more, taking into account options to renew) before a first retail sale is treated as a taxable sale. 1040 state tax form The tax is imposed on the lessor at the time of the lease. 1040 state tax form   A short-term lease (a lease with a term of less than 1 year, taking into account options to renew) before a first retail sale is treated as a taxable use. 1040 state tax form The tax is imposed on the lessor at the time of the lease. 1040 state tax form Exported vehicle. 1040 state tax form   A vehicle exported before its first retail sale, used in a foreign country, and then returned to the United States is subject to the retail tax on its first domestic use or retail sale after importation. 1040 state tax form Tax on resale of tax-paid trailers and semitrailers. 1040 state tax form   The tax applies to a trailer or semitrailer resold within 6 months after having been sold in a taxable sale. 1040 state tax form The seller liable for the tax on the resale can claim a credit equal to the tax paid on the prior taxable sale. 1040 state tax form The credit cannot exceed the tax on the resale. 1040 state tax form See Regulations section 145. 1040 state tax form 4052-1(a)(4) for information on the conditions to allowance for the credit. 1040 state tax form Use treated as sale. 1040 state tax form   If any person uses a taxable article before the first retail sale of the article, that person is liable for the tax as if the article had been sold at retail by that person. 1040 state tax form Figure the tax on the price at which similar articles are sold in the ordinary course of trade by retailers. 1040 state tax form The tax attaches when the use begins. 1040 state tax form   If the seller of an article regularly sells the articles at retail in arm's-length transactions, figure the tax on its use on the lowest established retail price for the articles in effect at the time of the taxable use. 1040 state tax form   If the seller of an article does not regularly sell the articles at retail in arm's-length transactions, a constructive price on which the tax is figured will be determined by the IRS after considering the selling practices and price structures of sellers of similar articles. 1040 state tax form   If a seller of an article incurs liability for tax on the use of the article and later sells or leases the article in a transaction that otherwise would be taxable, liability for tax is not incurred on the later sale or lease. 1040 state tax form Presumptive retail sales price. 1040 state tax form   There are rules to ensure that the tax base of transactions considered to be taxable sales includes either an actual or presumed markup percentage. 1040 state tax form If the person liable for tax is the vehicle's manufacturer, producer, or importer, the following discussions show how you figure the presumptive retail sales price depending on the type of transaction and the persons involved in the transaction. 1040 state tax form Table 6-1 outlines the appropriate tax base calculation for various transactions. 1040 state tax form   The presumed markup percentage to be used for trucks and truck-tractors is 4%. 1040 state tax form But for truck trailers and semitrailers and remanufactured trucks and tractors, the presumed markup percentage is zero. 1040 state tax form Sale. 1040 state tax form   For a taxable sale by a manufacturer, producer, importer, or related person, you generally figure the tax on a tax base of the sales price plus an amount equal to the presumed markup percentage times that sales price. 1040 state tax form Long-term lease. 1040 state tax form   In the case of a long-term lease by a manufacturer, producer, importer, or related person, figure the tax on a tax base of the constructive sales price plus an amount equal to the presumed markup percentage times the constructive sales price. 1040 state tax form Short-term lease. 1040 state tax form   When a manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a constructive sales price at which those or similar articles generally are sold in the ordinary course of trade by retailers. 1040 state tax form   But if the lessor in this situation regularly sells articles at retail in arm's-length transactions, figure the tax on the lowest established retail price in effect at the time of the taxable use. 1040 state tax form   If a person other than the manufacturer, producer, importer, or related person leases an article in a short-term lease considered a taxable use, figure the tax on a tax base of the price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor and a presumed markup percentage. 1040 state tax form Related person. 1040 state tax form   A related person is any member of the same controlled group as the manufacturer, producer, or importer. 1040 state tax form Do not treat as a related person a person that sells the articles through a permanent retail establishment in the normal course of being a retailer if that person has records to prove the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. 1040 state tax form Table 6-1. 1040 state tax form Tax Base IF the transaction is a. 1040 state tax form . 1040 state tax form . 1040 state tax form THEN figuring the base by using the. 1040 state tax form . 1040 state tax form . 1040 state tax form Sale by the manufacturer, producer, importer, or related person Sales price plus (presumed markup percentage × sales price) Sale by the dealer Total consideration paid for the item including any charges incident to placing it in a condition ready for use Long-term lease by the manufacturer, producer, importer, or related person Constructive sales price plus (presumed markup percentage × constructive sales price) Short-term lease by the manufacturer, producer, importer, or related person Constructive sales price at which such or similar articles are sold Short-term lease by a lessor other than the manufacturer, producer, importer, or related person Price for which the article was sold to the lessor plus the cost of parts and accessories installed by the lessor plus a presumed markup percentage Short-term lease where the articles are regularly sold at arm's length Lowest established retail price in effect at the time of the taxable use General rule for sales by dealers to the consumer. 1040 state tax form   For a taxable sale, other than a long-term lease, by a person other than a manufacturer, producer, importer, or related person, your tax base is the retail sales price as discussed next under Determination of tax base. 1040 state tax form   When you sell an article to the consumer, generally you do not add a presumed markup to the tax base. 1040 state tax form However, you do add a markup if all the following apply. 1040 state tax form You do not perform any significant activities relating to the processing of the sale of a taxable article. 1040 state tax form The main reason for processing the sale through you is to avoid or evade the presumed markup. 1040 state tax form You do not have records proving that the article was sold for a price that included a markup equal to or greater than the presumed markup percentage. 1040 state tax form In these situations, your tax base is the sales price plus an amount equal to the presumed markup percentage times that selling price. 1040 state tax form Determination of tax base. 1040 state tax form   These rules apply to both normal retail sales price and presumptive retail sales price computations. 1040 state tax form To arrive at the tax base, the price is the total consideration paid (including trade-in allowance) for the item and includes any charge incident to placing the article in a condition ready for use. 1040 state tax form However, see Presumptive retail sales price, earlier. 1040 state tax form Exclusions from tax base. 1040 state tax form   Exclude from the tax base the retail excise tax imposed on the sale. 1040 state tax form Exclude any state or local retail sales tax if stated as a separate charge from the price whether the sales tax is imposed on the seller or purchaser. 1040 state tax form Also exclude the value of any used component of the article furnished by the first user of the article. 1040 state tax form   Exclude charges for transportation, delivery, insurance, and installation (other than installation charges for parts and accessories, discussed earlier) and other expenses incurred in connection with the delivery of an article to a purchaser. 1040 state tax form These expenses are those incurred in delivery from the retail dealer to the customer. 1040 state tax form In the case of delivery directly from the manufacturer to the dealer's customer, include the transportation and delivery charges to the extent the charges do not exceed what it would have cost to ship the article to the dealer. 1040 state tax form   Exclude amounts charged for machinery or equipment that does not contribute to the highway transportation function of the vehicle, provided those charges are supported by adequate records. 1040 state tax form For example, for an industrial vacuum loader vehicle, exclude amounts charged for the vacuum pump and hose, filter system, material separator, silencer or muffler, control cabinet, and ladder. 1040 state tax form Similarly, for a sewer cleaning vehicle, exclude amounts charged for the high pressure water pump, hose components, and the vacuum pipe. 1040 state tax form Sales not at arm's length. 1040 state tax form   For any taxable article sold (not at arm's length) at less than the fair market price, figure the excise tax on the price for which similar articles are sold at retail in the ordinary course of trade. 1040 state tax form   A sale is not at arm's length if either of the following apply. 1040 state tax form One of the parties is controlled (in law or in fact) by the other or there is common control, whether or not the control is actually exercised to influence the sales price. 1040 state tax form The sale is made under special arrangements between a seller and a purchaser. 1040 state tax form Installment sales. 1040 state tax form   If the first retail sale is an installment sale, or other form of sale in which the sales price is paid in installments, tax liability arises at the time of the sale. 1040 state tax form The tax is figured on the entire sales price. 1040 state tax form No part of the tax is deferred because the sales price is paid in installments. 1040 state tax form Repairs and modifications. 1040 state tax form   The tax does not apply to the sale or use of an article that has been repaired or modified unless the cost of the repairs and modifications is more than 75% of the retail price of a comparable new article. 1040 state tax form This includes modifications that change the transportation function of an article or restore a wrecked article to a functional condition. 1040 state tax form However, this exception generally does not apply to an article that was not subject to the tax when it was new. 1040 state tax form Further manufacture. 1040 state tax form   The tax does not apply to the use by a person of a taxable article as material in the manufacture or production of, or as a component part of, another article to be manufactured or produced by that person. 1040 state tax form Do not treat a person as engaged in the manufacture of any article merely because that person combines the article with a: Coupling device (including any fifth wheel); Wrecker crane; Loading and unloading equipment (including any crane, hoist, winch, or power liftgate); Aerial ladder or tower; Ice and snow control equipment; Earth moving, excavation, and construction equipment; Spreader; Sleeper cab; Cab shield; or Wood or metal floor. 1040 state tax form Combining an article with an item in this list does not give rise to taxability. 1040 state tax form However, see Parts or accessories discussed earlier. 1040 state tax form Articles exempt from tax. 1040 state tax form   The tax on heavy trucks, trailers, and tractors does not apply to sales of the articles described in the following discussions. 1040 state tax form Rail trailers and rail vans. 1040 state tax form   This is any chassis or body of a trailer or semitrailer designed for use both as a highway vehicle and a railroad car (including any parts and accessories designed primarily for use on and in connection with it). 1040 state tax form Do not treat a piggyback trailer or semitrailer as designed for use as a railroad car. 1040 state tax form Parts and accessories. 1040 state tax form   This is any part or accessory sold separately from the truck or trailer, except as described earlier under Parts or accessories and Separate purchase. 1040 state tax form Trash containers. 1040 state tax form   This is any box, container, receptacle, bin, or similar article that meets all the following conditions. 1040 state tax form It is designed to be used as a trash container. 1040 state tax form It is not designed to carry freight other than trash. 1040 state tax form It is not designed to be permanently mounted on or affixed to a truck chassis or body. 1040 state tax form House trailers. 1040 state tax form   This is any house trailer (regardless of size) suitable for use in connection with either passenger automobiles or trucks. 1040 state tax form Camper coaches or bodies for self-propelled mobile homes. 1040 state tax form   This is any article designed to be mounted or placed on trucks, truck chassis, or automobile chassis and to be used primarily as living quarters or camping accommodations. 1040 state tax form Further, the tax does not apply to chassis specifically designed and constructed to accommodate and transport self-propelled mobile home bodies. 1040 state tax form Farm feed, seed, and fertilizer equipment. 1040 state tax form   This is any body primarily designed to process or prepare, haul, spread, load, or unload feed, seed, or fertilizer to or on farms. 1040 state tax form This exemption applies only to the farm equipment body (and parts and accessories) and not to the chassis upon which the farm equipment is mounted. 1040 state tax form Ambulances and hearses. 1040 state tax form   This is any ambulance, hearse, or combination ambulance-hearse. 1040 state tax form Truck-tractors. 1040 state tax form   This is any truck-tractor specifically designed for use in shifting semitrailers in and around freight yards and freight terminals. 1040 state tax form Concrete mixers. 1040 state tax form   This is any article designed to be placed or mounted on a truck, truck trailer, or semitrailer chassis to be used to process or prepare concrete. 1040 state tax form This exemption does not apply to the chassis on which the article is mounted. 1040 state tax form Sales exempt from tax. 1040 state tax form   The following sales are ordinarily exempt from tax. 1040 state tax form Sales to a state or local government for its exclusive use. 1040 state tax form Sales to Indian tribal governments, but only if the transaction involves the exercise of an essential tribal government function. 1040 state tax form Sales to a nonprofit educational organization for its exclusive use. 1040 state tax form Sales to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. 1040 state tax form Sales for use by the purchaser for further manufacture of other taxable articles (see below). 1040 state tax form Sales for export or for resale by the purchaser to a second purchaser for export. 1040 state tax form Sales to the United Nations for official use. 1040 state tax form Registration requirement. 1040 state tax form   In general, the seller and buyer must be registered for a sale to be tax free. 1040 state tax form See the Form 637 instructions for more information. 1040 state tax form Certain registration exceptions apply in the case of sales to state and local governments, sales to foreign purchasers for export, and sales for resale or long term leasing. 1040 state tax form Further manufacture. 1040 state tax form   If you buy articles tax free and resell or use them other than in the manufacture of another article, you are liable for the tax on their resale or use just as if you had manufactured and made the first retail sale of them. 1040 state tax form Credits or refunds. 1040 state tax form   A credit or refund (without interest) of the retail tax on the taxable articles described earlier may be allowable if the tax has been paid with respect to an article and, before any other use, such article is used by any person as a component part of another taxable article manufactured or produced. 1040 state tax form The person using the article as a component part is eligible for the credit or refund. 1040 state tax form   A credit or refund is allowable if, before any other use, an article is, by any person: Exported, Used or sold for use as supplies for vessels, Sold to a state or local government for its exclusive use, Sold to a nonprofit educational organization for its exclusive use, or Sold to a qualified blood collector organization (as defined under Communications Tax in chapter 4) for its exclusive use in the collection, storage, or transportation of blood. 1040 state tax form A credit or refund is also allowable if there is a price readjustment by reason of the return or repossession of an article or by reason of a bona fide discount, rebate, or allowance. 1040 state tax form   See also Conditions to allowance in chapter 5. 1040 state tax form Tire credit. 1040 state tax form   A credit is allowed against the retail tax on the taxable articles described earlier if taxable tires are sold on or in connection with the sale of the article. 1040 state tax form The credit is equal to the manufacturers excise tax imposed on the taxable tires (discussed earlier). 1040 state tax form This is the section 4051(d) taxable tire credit and is claimed on Schedule C (Form 720) for the same quarter for which the tax on the heavy vehicle is reported. 1040 state tax form Prev  Up  Next   Home   More Online Publications
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The 1040 State Tax Form

1040 state tax form 3. 1040 state tax form   Unrelated Trade or Business Table of Contents Selling of products of exempt functions. 1040 state tax form Dual use of assets or facilities. 1040 state tax form Exploitation of exempt functions. 1040 state tax form ExamplesExceptions. 1040 state tax form Excluded Trade or Business ActivitiesQualified sponsorship payment. 1040 state tax form Advertising. 1040 state tax form Exception for contingent payments. 1040 state tax form Exception for periodicals. 1040 state tax form Exception for conventions and trade shows. 1040 state tax form Legal definition. 1040 state tax form Legal where played. 1040 state tax form No for-profit games where played. 1040 state tax form Unrelated business income. 1040 state tax form   Unrelated business income is the income from a trade or business regularly conducted by an exempt organization and not substantially related to the performance by the organization of its exempt purpose or function, except that the organization uses the profits derived from this activity. 1040 state tax form   Certain trade or business activities are not treated as an unrelated trade or business. 1040 state tax form See Excluded Trade or Business Activities, later. 1040 state tax form Trade or business. 1040 state tax form   The term “trade or business” generally includes any activity conducted for the production of income from selling goods or performing services. 1040 state tax form An activity does not lose its identity as a trade or business merely because it is conducted within a larger group of similar activities that may or may not be related to the exempt purposes of the organization. 1040 state tax form   For example, the regular sale of pharmaceutical supplies to the general public by a hospital pharmacy does not lose its identity as a trade or business, even though the pharmacy also furnishes supplies to the hospital and patients of the hospital in accordance with its exempt purpose. 1040 state tax form Similarly, soliciting, selling, and publishing commercial advertising is a trade or business even though the advertising is published in an exempt organization's periodical that contains editorial matter related to the organization's exempt purpose. 1040 state tax form Regularly conducted. 1040 state tax form   Business activities of an exempt organization ordinarily are considered regularly conducted if they show a frequency and continuity, and are pursued in a manner similar to comparable commercial activities of nonexempt organizations. 1040 state tax form   For example, a hospital auxiliary's operation of a sandwich stand for 2 weeks at a state fair would not be the regular conduct of a trade or business. 1040 state tax form The stand would not compete with similar facilities that a nonexempt organization would ordinarily operate year-round. 1040 state tax form However, operating a commercial parking lot every Saturday, year-round, would be the regular conduct of a trade or business. 1040 state tax form Not substantially related. 1040 state tax form    A business activity is not substantially related to an organization's exempt purpose if it does not contribute importantly to accomplishing that purpose (other than through the production of funds). 1040 state tax form Whether an activity contributes importantly depends in each case on the facts involved. 1040 state tax form   In determining whether activities contribute importantly to the accomplishment of an exempt purpose, the size and extent of the activities involved must be considered in relation to the nature and extent of the exempt function that they intend to serve. 1040 state tax form For example, to the extent an activity is conducted on a scale larger than is reasonably necessary to perform an exempt purpose, it does not contribute importantly to the accomplishment of the exempt purpose. 1040 state tax form The part of the activity that is more than needed to accomplish the exempt purpose is an unrelated trade or business. 1040 state tax form   Also in determining whether activities contribute importantly to the accomplishment of an exempt purpose, the following principles apply. 1040 state tax form Selling of products of exempt functions. 1040 state tax form   Ordinarily, selling products that result from the performance of exempt functions is not an unrelated trade or business if the product is sold in substantially the same state it is in when the exempt functions are completed. 1040 state tax form Thus, for an exempt organization engaged in rehabilitating handicapped persons (its exempt function), selling articles made by these persons as part of their rehabilitation training is not an unrelated trade or business. 1040 state tax form   However, if a completed product resulting from an exempt function is used or exploited in further business activity beyond what is reasonably appropriate or necessary to dispose of it as is, the activity is an unrelated trade or business. 1040 state tax form For example, if an exempt organization maintains an experimental dairy herd for scientific purposes, the sale of milk and cream produced in the ordinary course of operation of the project is not an unrelated trade or business. 1040 state tax form But if the organization uses the milk and cream in the further manufacture of food items such as ice cream, pastries, etc. 1040 state tax form , the sale of these products is an unrelated trade or business unless the manufacturing activities themselves contribute importantly to the accomplishment of an exempt purpose of the organization. 1040 state tax form Dual use of assets or facilities. 1040 state tax form   If an asset or facility necessary to the conduct of exempt functions is also used in commercial activities, its use for exempt functions does not, by itself, make the commercial activities a related trade or business. 1040 state tax form The test, as discussed earlier, is whether the activities contribute importantly to the accomplishment of exempt purposes. 1040 state tax form   For example, a museum has a theater auditorium designed for showing educational films in connection with its program of public education in the arts and sciences. 1040 state tax form The theater is a principal feature of the museum and operates continuously while the museum is open to the public. 1040 state tax form If the organization also operates the theater as a motion picture theater for the public when the museum is closed, the activity is an unrelated trade or business. 1040 state tax form   For information on allocating expenses for the dual use of assets or facilities, see Deductions in chapter 4. 1040 state tax form Exploitation of exempt functions. 1040 state tax form   Exempt activities sometimes create goodwill or other intangibles that can be exploited in a commercial way. 1040 state tax form When an organization exploits such an intangible in commercial activities, the fact that the income depends in part upon an exempt function of the organization does not make the commercial activities a related trade or business. 1040 state tax form Unless the commercial exploitation contributes importantly to the accomplishment of the exempt purpose, the commercial activities are an unrelated trade or business. 1040 state tax form   For the treatment of expenses attributable to the exploitation of exempt activities, see Deductions in chapter 4. 1040 state tax form Examples The following are examples of activities that were determined to be (or not to be) unrelated trades or businesses using the definitions and principles just discussed. 1040 state tax form Sales commissions. 1040 state tax form   An agricultural organization, whose exempt purposes are to promote better conditions for cattle breeders and to improve the breed generally, engages in an unrelated trade or business when it regularly sells cattle for its members on a commission basis. 1040 state tax form Artists' facilities. 1040 state tax form   An organization whose exempt purpose is to stimulate and foster public interest in the fine arts by promoting art exhibits, sponsoring cultural events, and furnishing information about fine arts leases studio apartments to artist tenants and operates a dining hall primarily for these tenants. 1040 state tax form These two activities do not contribute importantly to accomplishing the organization's exempt purpose. 1040 state tax form Therefore, they are unrelated trades or businesses. 1040 state tax form Membership list sales. 1040 state tax form   An exempt educational organization regularly sells membership mailing lists to business firms. 1040 state tax form This activity does not contribute importantly to the accomplishment of the organization's exempt purpose and therefore is an unrelated trade or business. 1040 state tax form Also see Exchange or rental of member lists under Excluded Trade or Business Activities, later. 1040 state tax form Hospital facilities. 1040 state tax form   An exempt hospital leases its adjacent office building and furnishes certain office services to a hospital-based medical group for a fee. 1040 state tax form The group provides all diagnostic and therapeutic procedures to the hospital's patients and operates the hospital's emergency room on a 24-hour basis. 1040 state tax form The leasing activity is substantially related to the hospital's exempt purpose and is not an unrelated trade or business. 1040 state tax form   The hospital also operates a gift shop patronized by patients, visitors making purchases for patients, and employees; a cafeteria and coffee shop primarily for employees and medical staff; and a parking lot for patients and visitors only. 1040 state tax form These activities are also substantially related to the hospital's exempt purpose and do not constitute unrelated trades or businesses. 1040 state tax form Book publishing. 1040 state tax form   An exempt organization engages primarily in activities that further its exempt purposes. 1040 state tax form It also owns the publication rights to a book that does not relate to any of its exempt purposes. 1040 state tax form The organization exploits the book in a commercial manner by arranging for printing, distribution, publicity, and advertising in connection with the sale of the book. 1040 state tax form These activities constitute a trade or business regularly conducted. 1040 state tax form Because exploiting the book is unrelated to the organization's exempt purposes (except for the use of the book's profits), the income is unrelated business income. 1040 state tax form   However, if the organization transfers publication rights to a commercial publisher in return for royalties, the royalty income received will not be unrelated business income. 1040 state tax form See Royalties under Exclusions in chapter 4. 1040 state tax form School handicraft shop. 1040 state tax form   An exempt vocational school operates a handicraft shop that sells articles made by students in their regular courses of instruction. 1040 state tax form The students are paid a percentage of the sales price. 1040 state tax form In addition, the shop sells products made by local residents who make articles at home according to the shop's specifications. 1040 state tax form The shop manager periodically inspects the articles during their manufacture to ensure that they meet desired standards of style and quality. 1040 state tax form Although many local participants are former students of the school, any qualified person may participate in the program. 1040 state tax form The sale of articles made by students does not constitute an unrelated trade or business, but the sale of products made by local residents is an unrelated trade or business and is subject to unrelated business income tax. 1040 state tax form School facilities. 1040 state tax form   An exempt school has tennis courts and dressing rooms that it uses during the regular school year in its educational program. 1040 state tax form During the summer, the school operates a tennis club open to the general public. 1040 state tax form Employees of the school run the club, including collecting membership fees and scheduling court time. 1040 state tax form   Another exempt school leases the same type of facilities to an unrelated individual who runs a tennis club for the summer. 1040 state tax form The lease is for a fixed fee that does not depend on the income or profits derived from the leased property. 1040 state tax form   In both situations, the exempt purpose is the advancement of education. 1040 state tax form Furnishing tennis facilities in the manner described does not further that exempt purpose. 1040 state tax form These activities are unrelated trades or businesses. 1040 state tax form However, in the second situation the income derived from the leasing of the property is excluded from unrelated business taxable income as rent from real property. 1040 state tax form See Rents under Exclusions in chapter 4. 1040 state tax form Services provided with lease. 1040 state tax form   An exempt university leases its football stadium during several months of the year to a professional football team for a fixed fee. 1040 state tax form Under the lease agreement, the university furnishes heat, light, and water and is responsible for all ground maintenance. 1040 state tax form It also provides dressing room, linen, and stadium security services for the professional team. 1040 state tax form   Leasing of the stadium is an unrelated trade or business. 1040 state tax form In addition, the substantial services furnished for the convenience of the lessee go beyond those usually provided with the rental of space for occupancy only. 1040 state tax form Therefore, the income from this lease is rent from real property and unrelated business taxable income. 1040 state tax form Broadcasting rights. 1040 state tax form   An exempt collegiate athletic conference conducts an annual competitive athletic game between its conference champion and another collegiate team. 1040 state tax form Income is derived from admission charges and the sale of exclusive broadcasting rights to a national radio and television network. 1040 state tax form An athletic program is considered an integral part of the educational process of a university. 1040 state tax form   The educational purposes served by intercollegiate athletics are identical whether conducted directly by individual universities or by their regional athletic conference. 1040 state tax form Also, the educational purposes served by exhibiting a game before an audience that is physically present and exhibiting the game on television or radio before a much larger audience are substantially similar. 1040 state tax form Therefore, the sale of the broadcasting rights contributes importantly to the accomplishment of the organization's exempt purpose and is not an unrelated trade or business. 1040 state tax form   In a similar situation, an exempt organization was created as a national governing body for amateur athletes to foster interest in amateur sports and to encourage widespread public participation. 1040 state tax form The organization receives income each year from the sale of exclusive broadcasting rights to an independent producer, who contracts with a commercial network to broadcast many of the athletic events sponsored, supervised, and regulated by the organization. 1040 state tax form   The broadcasting of these events promotes the various amateur sports, fosters widespread public interest in the benefits of the organization's nationwide amateur program, and encourages public participation. 1040 state tax form The sale of the rights and the broadcasting of the events contribute importantly to the organization's exempt purpose. 1040 state tax form Therefore, the sale of the exclusive broadcasting rights is not an unrelated trade or business. 1040 state tax form Yearbook advertising. 1040 state tax form   An exempt organization receives income from the sale of advertising in its annual yearbook. 1040 state tax form The organization hires an independent commercial firm, under a contract covering a full calendar year, to conduct an intensive advertising solicitation campaign in the organization's name. 1040 state tax form This firm is paid a percentage of the gross advertising receipts for selling the advertising, collecting from advertisers, and printing the yearbook. 1040 state tax form This advertising activity is an unrelated trade or business. 1040 state tax form Pet boarding and grooming services. 1040 state tax form   An exempt organization, organized and operated for the prevention of cruelty to animals, receives unrelated business income from providing pet boarding and grooming services for the general public. 1040 state tax form These activities do not contribute importantly to its purpose of preventing cruelty to animals. 1040 state tax form Museum eating facilities. 1040 state tax form   An exempt art museum operates a dining room, a cafeteria, and a snack bar for use by the museum staff, employees, and visitors. 1040 state tax form Eating facilities in the museum help to attract visitors and allow them to spend more time viewing the museum's exhibits without having to seek outside restaurants at mealtime. 1040 state tax form The eating facilities also allow the museum staff and employees to remain in the museum throughout the day. 1040 state tax form Thus, the museum's operation of the eating facilities contributes importantly to the accomplishment of its exempt purposes and is not unrelated trade or business. 1040 state tax form Halfway house workshop. 1040 state tax form   A halfway house organized to provide room, board, therapy, and counseling for persons discharged from alcoholic treatment centers also operates a furniture shop to provide full-time employment for its residents. 1040 state tax form The profits are applied to the operating costs of the halfway house. 1040 state tax form The income from this venture is not unrelated trade or business income because the furniture shop contributes importantly to the organization's purpose of aiding its residents' transition from treatment to a normal and productive life. 1040 state tax form Travel tour programs. 1040 state tax form   Travel tour activities that are a trade or business are an unrelated trade or business if the activities are not substantially related to the purpose for which tax exemption was granted to the organization. 1040 state tax form Example 1. 1040 state tax form A tax-exempt university alumni association provides a travel tour program for its members and their families. 1040 state tax form The organization works with various travel agencies and schedules approximately ten tours a year to various places around the world. 1040 state tax form It mails out promotional material and accepts reservations for fees paid by the travel agencies on a per-person basis. 1040 state tax form The organization provides an employee for each tour as a tour leader. 1040 state tax form There is no formal educational program conducted with these tours, and they do not differ from regular commercially operated tours. 1040 state tax form By providing travel tours to its members, the organization is engaging in a regularly conducted trade or business. 1040 state tax form Even if the tours it offers support the university, financially and otherwise, and encourage alumni to do the same, they do not contribute importantly to the organization's exempt purpose of promoting education. 1040 state tax form Therefore, the sale of the travel tours is an unrelated trade or business. 1040 state tax form Example 2. 1040 state tax form A tax-exempt organization formed for the purpose of educating individuals about the geography and the culture of the United States provides study tours to national parks and other locations within the United States. 1040 state tax form These tours are conducted by teachers and others certified by the state board of education. 1040 state tax form The tours are primarily designed for students enrolled in degree programs at state educational institutions but are open to all who agree to participate in the required study program associated with the tour taken. 1040 state tax form A tour's study program consists of instruction on subjects related to the location being visited on the tour. 1040 state tax form Each tour group brings along a library of material related to the subjects being studied on the tour. 1040 state tax form During the tour, 5 or 6 hours per day are devoted to organized study, preparation of reports, lectures, instruction, and recitation by the students. 1040 state tax form Examinations are given at the end of each tour. 1040 state tax form The state board of education awards academic credit for tour participation. 1040 state tax form Because these tours are substantially related to the organization's exempt purpose, they are not an unrelated trade or business. 1040 state tax form Insurance programs. 1040 state tax form   An organization that acts as a group insurance policyholder for its members and collects a fee for performing administrative services is normally carrying on an unrelated trade or business. 1040 state tax form Exceptions. 1040 state tax form   Organizations whose exempt activities may include the provision of insurance benefits, such as fraternal beneficiary societies, voluntary employees beneficiary associations, and labor organizations, are generally exceptions to this rule. 1040 state tax form Magazine publishing. 1040 state tax form   An association of credit unions with tax-exempt status as a business league publishes a consumer-oriented magazine four times a year and makes it available to member credit unions for purchase. 1040 state tax form   By selling a magazine to its members as a promotional device, the organization furnishes its members with a regular commercial service they can use in their own operations. 1040 state tax form This service does not promote the improvement of business conditions of one or more lines of business, which is the exempt purpose of a business league. 1040 state tax form   Since the activity does not contribute importantly to the organization's exempt function, it is an unrelated trade or business. 1040 state tax form Directory of members. 1040 state tax form   A business league publishes an annual directory that contains a list of all its members, their addresses, and their area of expertise. 1040 state tax form Each member has the same amount of space in the directory, and its format does not emphasize the relative importance or reputation of any member. 1040 state tax form The directory contains no commercial advertisement and is sold only to the organization's members. 1040 state tax form   The directory facilitates communication among the members and encourages the exchange of ideas and expertise. 1040 state tax form Because the directory lists the members in a similar noncommercial format without advertising and is not distributed to the public, its sale does not confer private commercial benefits on the members. 1040 state tax form The sale of the directory does contribute importantly to the organization's exempt purpose and is not an unrelated trade or business. 1040 state tax form This directory differs from the publication discussed next because of its noncommercial characteristics. 1040 state tax form Sales of advertising space. 1040 state tax form   A national association of law enforcement officials publishes a monthly journal that contains articles and other editorial material of professional interest to its members. 1040 state tax form The journal is distributed without charge, mainly to the organization's members. 1040 state tax form   The organization sells advertising space in the journal either for conventional advertising or to merely identify the purchaser without a commercial message. 1040 state tax form Some of the noncommercial advertising identifies the purchaser in a separate space, and some consists of listings of 60 or more purchasers per page. 1040 state tax form A business firm identified in a separate space is further identified in an Index of Advertisers. 1040 state tax form   The organization solicits advertising by personal contacts. 1040 state tax form Advertising from large firms is solicited by contacting their chief executive officer or community relations officer rather than their advertising manager. 1040 state tax form The organization also solicits advertising in form letters appealing for corporate and personal contributions. 1040 state tax form   An exempt organization's sale of advertising placed for the purchaser's commercial benefit is a commercial activity. 1040 state tax form Goodwill derived by the purchaser from being identified as a patron of the organization is usually considered a form of commercial benefit. 1040 state tax form Therefore, advertising in an exempt organization's publication is generally presumed to be placed for the purchaser's commercial benefit, even if it has no commercial message. 1040 state tax form However, this presumption is not conclusive if the purchaser's patronage would be difficult to justify commercially in view of the facts and circumstances. 1040 state tax form In that case, other factors should also be considered in determining whether a commercial benefit can be expected. 1040 state tax form Those other factors include: The normal manner in which the publication is circulated; The territorial scope of the circulation; The extent to which its readers, promoters, or the like could reasonably be expected to further, either directly or indirectly, the commercial interest of the advertisers; The eligibility of the publishing organization to receive tax-deductible contributions; and The commercial or noncommercial methods used to solicit the advertisers. 1040 state tax form   In this situation, the purchaser of a separate advertising space without a commercial message can nevertheless expect a commercial benefit from the goodwill derived from being identified in that manner as a patron of the organization. 1040 state tax form However, the purchaser of a listing cannot expect more than an inconsequential benefit. 1040 state tax form Therefore, the sale of separate spaces, but not the listings, is an unrelated trade or business. 1040 state tax form Publishing legal notices. 1040 state tax form   A bar association publishes a legal journal containing opinions of the county court, articles of professional interest to lawyers, advertisements for products and services used by the legal profession, and legal notices. 1040 state tax form The legal notices are published to satisfy state laws requiring publication of notices in connection with legal proceedings, such as the administration of estates and actions to quiet title to real property. 1040 state tax form The state designated the bar association's journal as the place to publish the required notices. 1040 state tax form   The publication of ordinary commercial advertising does not advance the exempt purposes of the association even when published in a periodical that contains material related to exempt purposes. 1040 state tax form Although the advertising is directed specifically to members of the legal profession, it is still commercial in nature and does not contribute importantly to the exempt purposes of the association. 1040 state tax form Therefore, the advertising income is unrelated trade or business income. 1040 state tax form   On the other hand, the publication of legal notices is distinguishable from ordinary commercial advertising in that its purpose is to inform the general public of significant legal events rather than to stimulate demand for the products or services of an advertiser. 1040 state tax form This promotes the common interests of the legal profession and contributes importantly to the association's exempt purposes. 1040 state tax form Therefore, the publishing of legal notices does not constitute an unrelated trade or business. 1040 state tax form Museum greeting card sales. 1040 state tax form    An art museum that exhibits modern art sells greeting cards that display printed reproductions of selected works from other art collections. 1040 state tax form Each card is imprinted with the name of the artist, the title or subject matter of the work, the date or period of its creation, if known, and the museum's name. 1040 state tax form The cards contain appropriate greetings and are personalized on request. 1040 state tax form   The organization sells the cards in the shop it operates in the museum and sells them at quantity discounts to retail stores. 1040 state tax form It also sells them by mail order through a catalog that is advertised in magazines and other publications throughout the year. 1040 state tax form As a result, a large number of cards are sold at a significant profit. 1040 state tax form   The museum is exempt as an educational organization on the basis of its ownership, maintenance, and exhibition for public viewing of works of art. 1040 state tax form The sale of greeting cards with printed reproductions of artworks contributes importantly to the achievement of the museum's exempt educational purposes by enhancing public awareness, interest, and appreciation of art. 1040 state tax form The cards may encourage more people to visit the museum itself to share in its educational programs. 1040 state tax form The fact that the cards are promoted and sold in a commercial manner at a profit and in competition with commercial greeting card publishers does not alter the fact that the activity is related to the museum's exempt purpose. 1040 state tax form Therefore, these sales activities are not an unrelated trade or business. 1040 state tax form Museum shop. 1040 state tax form   An art museum maintained and operated for the exhibition of American folk art operates a shop in the museum that sells: Reproductions of works in the museum's own collection and reproductions of artistic works from the collections of other art museums (prints suitable for framing, postcards, greeting cards, and slides); Metal, wood, and ceramic copies of American folk art objects from its own collection and similar copies of art objects from other collections of artworks; Instructional literature and scientific books and souvenir items concerning the history and development of art and, in particular, of American folk art; and Scientific books and souvenir items of the city in which the museum is located. 1040 state tax form   The shop also rents originals or reproductions of paintings contained in its collection. 1040 state tax form All of its reproductions are imprinted with the name of the artist, the title or subject matter of the work from which it is reproduced, and the museum's name. 1040 state tax form   Each line of merchandise must be considered separately to determine if sales are related to the exempt purpose. 1040 state tax form   The sale and rental of reproductions and copies of works from the museum's own collection and reproductions of artistic works not owned by the museum contribute importantly to the achievement of the museum's exempt educational purpose by making works of art familiar to a broader segment of the public, thereby enhancing the public's understanding and appreciation of art. 1040 state tax form The same is true for the sale of literature relating to art. 1040 state tax form Therefore, these sales activities are not an unrelated trade or business. 1040 state tax form   On the other hand, the sale of scientific books and souvenir items of the city where the museum is located has no causal relationship to art or to artistic endeavor and, therefore, does not contribute importantly to the accomplishment of the museum's exempt educational purposes. 1040 state tax form The fact that selling some of these items could, under different circumstances, be held related to the exempt educational purpose of some other exempt educational organization does not change this conclusion. 1040 state tax form Additionally, the sale of these items does not lose its identity as a trade or business merely because the museum also sells articles which do contribute importantly to the accomplishment of its exempt function. 1040 state tax form Therefore, these sales are an unrelated trade or business. 1040 state tax form Business league's parking and bus services. 1040 state tax form   A business league, whose purpose is to retain and stimulate trade in a downtown area that has inadequate parking facilities, operates a fringe parking lot and shuttle bus service. 1040 state tax form It also operates, as an insubstantial part of its activities, a park and shop plan. 1040 state tax form   The fringe parking lot and shuttle bus service operate in a manner that does not favor any individual or group of downtown merchants. 1040 state tax form The merchants cannot offer free or discount parking or bus fares to their customers. 1040 state tax form   The park and shop plan allows customers of particular merchants to park free at certain parking lots in the area. 1040 state tax form Merchants participating in this plan buy parking stamps, which they distribute to their customers to use to pay for parking. 1040 state tax form   Operating the fringe parking lot and shuttle bus service provides easy and convenient access to the downtown area and, therefore, stimulates and improves business conditions in the downtown area generally. 1040 state tax form That activity contributes importantly to the organization's accomplishing its exempt purpose and is not an unrelated trade or business. 1040 state tax form   The park and shop plan encourages customers to use a limited number of participating member merchants in order to obtain free parking. 1040 state tax form This provides a particular service to individual members of the organization and does not further its exempt purpose. 1040 state tax form Therefore, operating the park and shop plan is an unrelated trade or business. 1040 state tax form Youth residence. 1040 state tax form   An exempt organization, whose purpose is to provide for the welfare of young people, rents rooms primarily to people under age 25. 1040 state tax form The residence units are operated on, and as a part of, the premises in which the organization carries on the social, recreational, and guidance programs for which it was recognized as exempt. 1040 state tax form The facilities are under the management and supervision of trained career professionals who provide residents with personal counseling, physical education programs, and group recreational activities. 1040 state tax form The rentals are not an unrelated trade or business because renting the rooms is substantially related to the organization's exempt purpose. 1040 state tax form Health club program. 1040 state tax form   An exempt charitable organization's purpose is to provide for the welfare of young people. 1040 state tax form The organization conducts charitable activities and maintains facilities that will contribute to the physical, social, mental, and spiritual health of young people at minimum or no cost to them. 1040 state tax form Nominal annual dues are charged for membership in the organization and use of the facilities. 1040 state tax form   In addition, the organization organized a health club program that its members could join for an annual fee in addition to the annual dues. 1040 state tax form The annual fee is comparable to fees charged by similar local commercial health clubs and is sufficiently high to restrict participation in the program to a limited number of members of the community. 1040 state tax form   The health club program is in addition to the general physical fitness program of the organization. 1040 state tax form Operating this program does not contribute importantly to the organization's accomplishing its exempt purpose and, therefore, is an unrelated trade or business. 1040 state tax form Miniature golf course. 1040 state tax form   An exempt youth welfare organization operates a miniature golf course that is open to the general public. 1040 state tax form The course, which is managed by salaried employees, is substantially similar to commercial courses. 1040 state tax form The admission fees charged are comparable to fees of commercial facilities and are designed to return a profit. 1040 state tax form   The operation of the miniature golf course in a commercial manner does not contribute importantly to the accomplishment of the organization's exempt purpose and, therefore, is an unrelated trade or business. 1040 state tax form Sales of hearing aids. 1040 state tax form   A tax-exempt hospital, whose primary activity is rehabilitation, sells hearing aids to patients. 1040 state tax form This activity is an essential part of the hospital's program to test and evaluate patients with hearing deficiencies and contributes importantly to its exempt purpose. 1040 state tax form It is not an unrelated trade or business. 1040 state tax form Nonpatient laboratory testing. 1040 state tax form   Nonpatient laboratory testing performed by a tax-exempt teaching hospital on specimens needed for the conduct of its teaching activities is not an unrelated trade or business. 1040 state tax form However, laboratory testing performed by a tax-exempt non-teaching hospital on referred specimens from private office patients of staff physicians is an unrelated trade or business if these services are otherwise available in the community. 1040 state tax form Selling endorsements. 1040 state tax form   An exempt scientific organization enjoys an excellent reputation in the field of biological research. 1040 state tax form It exploits this reputation regularly by selling endorsements of laboratory equipment to manufacturers. 1040 state tax form Endorsing laboratory equipment does not contribute importantly to the accomplishment of any purpose for which exemption is granted to the organization. 1040 state tax form Accordingly, the sale of endorsements is an unrelated trade or business. 1040 state tax form Sponsoring entertainment events. 1040 state tax form   An exempt university has a regular faculty and a regularly enrolled student body. 1040 state tax form During the school year, the university sponsors the appearance of professional theater companies and symphony orchestras that present drama and musical performances for the students and faculty members. 1040 state tax form Members of the general public also are admitted. 1040 state tax form The university advertises these performances and supervises advance ticket sales at various places, including such university facilities as the cafeteria and the university bookstore. 1040 state tax form Although the presentation of the performances makes use of an intangible generated by the university's exempt educational functions—the presence of the student body and faculty—such drama and music events contribute importantly to the overall educational and cultural functions of the university. 1040 state tax form Therefore, the activity is not an unrelated trade or business. 1040 state tax form Excluded Trade or Business Activities The following activities are specifically excluded from the definition of unrelated trade or business. 1040 state tax form Volunteer workforce. 1040 state tax form   Any trade or business in which substantially all the work is performed for the organization without compensation is not an unrelated trade or business. 1040 state tax form Example 1. 1040 state tax form A retail store operated by an exempt orphanage where unpaid volunteers perform substantially all the work in carrying on the business is not an unrelated trade or business. 1040 state tax form Example 2. 1040 state tax form A volunteer fire company conducts weekly public dances. 1040 state tax form Holding public dances and charging admission on a regular basis may, given the facts and circumstances of a particular case, be considered an unrelated trade or business. 1040 state tax form However, because the work at the dances is performed by unpaid volunteers, the activity is not an unrelated trade or business. 1040 state tax form Convenience of members. 1040 state tax form   A trade or business conducted by a 501(c)(3) organization or by a governmental college or university primarily for the convenience of its members, students, patients, officers, or employees is not an unrelated trade or business. 1040 state tax form For example, a laundry operated by a college for the purpose of laundering dormitory linens and students' clothing is not an unrelated trade or business. 1040 state tax form Qualified sponsorship activities. 1040 state tax form   Soliciting and receiving qualified sponsorship payments is not an unrelated trade or business, and the payments are not subject to unrelated business income tax. 1040 state tax form Qualified sponsorship payment. 1040 state tax form   This is any payment made by a person engaged in a trade or business for which the person will receive no substantial benefit other than the use or acknowledgment of the business name, logo, or product lines in connection with the organization's activities. 1040 state tax form “Use or acknowledgment” does not include advertising the sponsor's products or services. 1040 state tax form The organization's activities include all its activities, whether or not related to its exempt purposes. 1040 state tax form   For example, if, in return for receiving a sponsorship payment, an organization promises to use the sponsor's name or logo in acknowledging the sponsor's support for an educational or fundraising event, the payment is a qualified sponsorship payment and is not subject to the unrelated business income tax. 1040 state tax form   Providing facilities, services, or other privileges (for example, complimentary tickets, pro-am playing spots in golf tournaments, or receptions for major donors) to a sponsor or the sponsor's designees in connection with a sponsorship payment does not affect whether the payment is a qualified sponsorship payment. 1040 state tax form Instead, providing these goods or services is treated as a separate transaction in determining whether the organization has unrelated business income from the event. 1040 state tax form Generally, if the services or facilities are not a substantial benefit or if providing them is a related business activity, the payments will not be subject to the unrelated business income tax. 1040 state tax form   Similarly, the sponsor's receipt of a license to use an intangible asset (for example, a trademark, logo, or designation) of the organization is treated as separate from the qualified sponsorship transaction in determining whether the organization has unrelated business taxable income. 1040 state tax form   If part of a payment would be a qualified sponsorship payment if paid separately, that part is treated as a separate payment. 1040 state tax form For example, if a sponsorship payment entitles the sponsor to both product advertising and the use or acknowledgment of the sponsor's name or logo by the organization, then the unrelated business income tax does not apply to the part of the payment that is more than the fair market value of the product advertising. 1040 state tax form Advertising. 1040 state tax form   A payment is not a qualified sponsorship payment if, in return, the organization advertises the sponsor's products or services. 1040 state tax form For information on the treatment of payments for advertising, see Exploitation of Exempt Activity—Advertising Sales in chapter 4. 1040 state tax form   Advertising includes: Messages containing qualitative or comparative language, price information, or other indications of savings or value; Endorsements; and Inducements to purchase, sell, or use the products or services. 1040 state tax form   The use of promotional logos or slogans that are an established part of the sponsor's identity is not, by itself, advertising. 1040 state tax form In addition, mere distribution or display of a sponsor's product by the organization to the public at a sponsored event, whether for free or for remuneration, is considered use or acknowledgment of the product rather than advertising. 1040 state tax form Exception for contingent payments. 1040 state tax form   A payment is not a qualified sponsorship payment if its amount is contingent, by contract or otherwise, upon the level of attendance at one or more events, broadcast ratings, or other factors indicating the degree of public exposure to one or more events. 1040 state tax form However, the fact that a sponsorship payment is contingent upon an event actually taking place or being broadcast does not, by itself, affect whether a payment qualifies. 1040 state tax form Exception for periodicals. 1040 state tax form   A payment is not a qualified sponsorship payment if it entitles the payer to the use or acknowledgment of the business name, logo, or product lines in the organization's periodical. 1040 state tax form For this purpose, a periodical is any regularly scheduled and printed material (for example, a monthly journal) published by or on behalf of the organization. 1040 state tax form It does not include material that is related to and primarily distributed in connection with a specific event conducted by the organization (for example, a program or brochure distributed at a sponsored event). 1040 state tax form   The treatment of payments that entitle the payer to the depiction of the payer's name, logo, or products lines in an organization's periodical is determined under the rules that apply to advertising activities. 1040 state tax form See Sales of advertising space under Examples, earlier in this chapter. 1040 state tax form Also see Exploitation of Exempt Activity—Advertising Sales in chapter 4. 1040 state tax form Exception for conventions and trade shows. 1040 state tax form   A payment is not a qualified sponsorship payment if it is made in connection with any qualified convention or trade show activity. 1040 state tax form The exclusion of qualified convention or trade show activities from the definition of unrelated trade or business is explained later under Convention or trade show activity. 1040 state tax form Selling donated merchandise. 1040 state tax form   A trade or business that consists of selling merchandise, substantially all of which the organization received as gifts or contributions, is not an unrelated trade or business. 1040 state tax form For example, a thrift shop operated by a tax-exempt organization that sells donated clothes and books to the general public, with the proceeds going to the exempt organization, is not an unrelated trade or business. 1040 state tax form Employee association sales. 1040 state tax form   The sale of certain items by a local association of employees described in section 501(c)(4), organized before May 17, 1969, is not an unrelated trade or business if the items are sold for the convenience of the association's members at their usual place of employment. 1040 state tax form This exclusion applies only to the sale of work-related clothes and equipment and items normally sold through vending machines, food dispensing facilities, or by snack bars. 1040 state tax form Bingo games. 1040 state tax form   Certain bingo games are not included in the term “unrelated trade or business. 1040 state tax form ” To qualify for this exclusion, the bingo game must meet the following requirements. 1040 state tax form It meets the legal definition of bingo. 1040 state tax form It is legal where it is played. 1040 state tax form It is played in a jurisdiction where bingo games are not regularly conducted by for-profit organizations. 1040 state tax form Legal definition. 1040 state tax form   For a game to meet the legal definition of bingo, wagers must be placed, winners must be determined, and prizes or other property must be distributed in the presence of all persons placing wagers in that game. 1040 state tax form   A wagering game that does not meet the legal definition of bingo does not qualify for the exclusion, regardless of its name. 1040 state tax form For example, “instant bingo,” in which a player buys a pre-packaged bingo card with pull-tabs that the player removes to determine if he or she is a winner, does not qualify. 1040 state tax form Legal where played. 1040 state tax form   This exclusion applies only if bingo is legal under the laws of the jurisdiction where it is conducted. 1040 state tax form The fact that a jurisdiction's law that prohibits bingo is rarely enforced or is widely disregarded does not make the conduct of bingo legal for this purpose. 1040 state tax form No for-profit games where played. 1040 state tax form   This exclusion applies only if for-profit organizations cannot regularly conduct bingo games in any part of the same jurisdiction. 1040 state tax form Jurisdiction is normally the entire state; however, in certain situations, local jurisdiction will control. 1040 state tax form Example. 1040 state tax form Tax-exempt organizations X and Y are organized under the laws of state N, which has a law that permits exempt organizations to conduct bingo games. 1040 state tax form In addition, for-profit organizations are permitted to conduct bingo games in city S, a resort community located in county R. 1040 state tax form Several for-profit organizations conduct nightly games. 1040 state tax form Y conducts weekly bingo games in city S, while X conducts weekly games in county R. 1040 state tax form Since state law confines the for-profit organizations to city S, local jurisdiction controls. 1040 state tax form Y's bingo games conducted in city S are an unrelated trade or business. 1040 state tax form However, X's bingo games conducted in county R outside of city S are not an unrelated trade or business. 1040 state tax form Gambling activities other than bingo. 1040 state tax form   Any game of chance conducted by an exempt organization in North Dakota is not an unrelated trade or business if conducting the game does not violate any state or local law. 1040 state tax form Pole rentals. 1040 state tax form   The term unrelated trade or business does not include qualified pole rentals by a mutual or cooperative telephone or electric company described in section 501(c)(12). 1040 state tax form A qualified pole rental is the rental of a pole (or other structure used to support wires) if the pole (or other structure) is used: By the telephone or electric company to support one or more wires that the company uses in providing telephone or electric services to its members, and According to the rental, to support one or more wires (in addition to the wires described in 1 ) for use in connection with the transmission by wire of electricity or of telephone or other communications. 1040 state tax form For this purpose, the term rental includes any sale of the right to use the pole (or other structure). 1040 state tax form Distribution of low cost articles. 1040 state tax form   The term unrelated trade or business does not include activities relating to the distribution of low cost articles incidental to soliciting charitable contributions. 1040 state tax form This applies to organizations described in section 501 that are eligible to receive charitable contributions. 1040 state tax form   A distribution is considered incidental to the solicitation of a charitable contribution if: The recipient did not request the distribution, The distribution is made without the express consent of the recipient, and The article is accompanied by a request for a charitable contribution to the organization and a statement that the recipient may keep the low cost article regardless of whether a contribution is made. 1040 state tax form   An article is considered low cost if the cost of an item (or the aggregate costs if more than one item) distributed to a single recipient in a tax year is not more than $5, indexed annually for inflation. 1040 state tax form The maximum cost of a low cost article is $9. 1040 state tax form 70 for 2011. 1040 state tax form The cost of an article is the cost to the organization that distributes the item or on whose behalf it is distributed. 1040 state tax form Exchange or rental of member lists. 1040 state tax form   The exchange or rental of member or donor lists between organizations described in section 501 that are eligible to receive charitable contributions is not included in the term unrelated trade or business. 1040 state tax form Hospital services. 1040 state tax form   The providing of certain services at or below cost by an exempt hospital to other exempt hospitals that have facilities for 100 or fewer inpatients is not an unrelated trade or business. 1040 state tax form This exclusion applies only to services described in section 501(e)(1)(A). 1040 state tax form Public entertainment activity. 1040 state tax form   An unrelated trade or business does not include a qualified public entertainment activity. 1040 state tax form A public entertainment activity is one traditionally conducted at a fair or exposition promoting agriculture and education, including any activity whose purpose is designed to attract the public to fairs or expositions or to promote the breeding of animals or the development of products or equipment. 1040 state tax form   A qualified public entertainment activity is one conducted by a qualifying organization: In conjunction with an international, national, state, regional, or local fair or exposition; In accordance with state law that permits the activity to be operated or conducted solely by such an organization or by an agency, instrumentality, or political subdivision of the state; or In accordance with state law that permits an organization to be granted a license to conduct an activity for not more than 20 days on paying the state a lower percentage of the revenue from the activity than the state charges nonqualifying organizations that hold similar activities. 1040 state tax form   For these purposes, a qualifying organization is an organization described in section 501(c)(3), 501(c)(4), or 501(c)(5) that regularly conducts an agricultural and educational fair or exposition as one of its substantial exempt purposes. 1040 state tax form Its conducting qualified public entertainment activities will not affect determination of its exempt status. 1040 state tax form Convention or trade show activity. 1040 state tax form   An unrelated trade or business does not include qualified convention or trade show activities conducted at a convention, annual meeting, or trade show. 1040 state tax form   A qualified convention or trade show activity is any activity of a kind traditionally conducted by a qualifying organization in conjunction with an international, national, state, regional, or local convention, annual meeting, or show if: One of the purposes of the organization in sponsoring the activity is promoting and stimulating interest in, and demand for, the products and services of that industry or educating the persons in attendance regarding new products and services or new rules and regulations affecting the industry; and The show is designed to achieve its purpose through the character of the exhibits and the extent of the industry products that are displayed. 1040 state tax form   For these purposes, a qualifying organization is one described in section 501(c)(3), 501(c)(4), 501(c)(5), or 501(c)(6). 1040 state tax form The organization must regularly conduct, as one of its substantial exempt purposes, a qualified convention or trade show activity. 1040 state tax form   The rental of display space to exhibitors (including exhibitors who are suppliers) at a qualified convention or trade show is not an unrelated trade or business even if the exhibitors who rent the space are permitted to sell or solicit orders. 1040 state tax form For this purpose, a supplier's exhibit is one in which the exhibitor displays goods or services that are supplied to, rather than by, members of the qualifying organization in the conduct of these members' own trades or businesses. 1040 state tax form    Certain Internet activities conducted by a trade association described in section 501(c)(6) will be considered qualified convention and trade show activity if conducted on a special supplementary section of the association's website in conjunction with a trade show conducted by the association. 1040 state tax form The trade show itself must be a qualified convention and trade show activity. 1040 state tax form The supplementary section of the website must be ancillary to, and serve to augment and enhance, the trade show, as when it makes available the same information available at the trade show and is available only during a time period that coincides with the time period that the trade show is in operation. 1040 state tax form Conversely, Internet activities that are not conducted in conjunction with a qualified convention and trade show activity and that do not augment and enhance the trade show cannot themselves be qualified convention and trade show activity. 1040 state tax form Prev  Up  Next   Home   More Online Publications